Fuel Cost Trigger Other Price Hikes

FROM midnight tonight, con­sumers will pay more for fuel and should brace themselves for further increases including that of meat prices by year-end, say experts.

The price of petrol will increase by 44c a litre and diesel by 22c.

Gwarega Mangozhe, chief execu­tive at the Consumer Goods Council of SA, said the higher price of fuel – directly linked to the weakening of the rand against the dollar – will inevitably affect disposable house­hold income, already under pressure from other cost increases.

“Consumer spending is subdued and some of our members have noticed a change in shopping habits as consumers search for bargains, while some are prioritising their overall spend on groceries in light of tighter disposable incomes.

“We remain confident that many of our members will experience a fairly busy festive trading season, but the overall outlook remains uncertain given the predicted low economic growth during 2016.”

Momentum economist Sanisha Packirisamy, said the 43c/l under recovery in the price of petrol last month was largely a function of a 1.7% depreciation in the rand against the dollar between August and September and a 0.4% uptick in average monthly international oil prices over the same period.

“If oil prices persist at these lev­els there could be a further increase in petrol prices next month, should the rand stay at similar levels.”

The rand is also under pres­sure from heightened fears around a sovereign rating downgrade by Standard and Poor’s rating agency in December this year on the back of weak growth fundamentals and persistent policy incoherence, she said.

“In our view, the expected rise in petrol prices still leaves the year-on- year inflation rate in private trans­port costs in the Stats SA consumer basket at reasonably low levels.”
Standard Bank economist Kim Silberman said the outlook for the remainder of the year was for the petrol price to continue to rise which will add pressure on consumers’ dis­posable income.

Silberman said consumers spent on average 5.7% of their income dir­ectly on petrol which added pressure to consumers’ disposable income.

“However, the effect of the fuel price are far broader than that. It will most likely feed through to the price of public transport and the general cost of producing goods and services. We expect meat price infla­tion to accelerate in December.”

Neil Roets, chief executive of debt management firm, Debt Rescue, said he expected further increases in the price of fuel towards the end of the year. “The ongoing political bickering within the ANC and an extremely sluggish economy is likely to impact on the rand and it looks as if the price of crude oil may also be on the rise.”

Roets said one of the major effects of the fuel price increase on the economy would be the continued rise in the price of food.

“The announcement by the Red Meat Producers Association is that red meat prices could increase by as much as R8 a kilo in the short term and that it could take between three to five years to restore herds following the severe drought.

“This is bad news for consumers who depend on meat for survival.”

Roets said the real elephant in the room was the expected down­grade by the ratings agencies later in the year. “Despite all the efforts by the government to persuade the agencies that our economy is on the mend, they are not buying into the narrative and the reasons are clear: widespread corruption and parastatals like Eskom and South African Airways that are burning through taxpayer money at an alarming rate.”

Damon Sivitilli, head of mar­keting at debt management firm, DebtBusters, said the price of fuel going up puts more pressure on the already strained budgets of many South African consumers. He said not only will the fuel hike and the resulting increasing cost of com­modities choke consumers, it will also have a huge impact on small businesses across the country.

Sivitilli advised consumers to start reviewing their budgets by looking at their needs and adjusting their spend on luxuries in order to survive this economic and political turmoil.

“The repo rate went unchanged last month due to stable inflation rates, but the upcoming increase in petrol costs may put pressure on this once again and continue the trend of rising inflation and costs into the new year.”

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